That's concerning to hear about your brother's experience. Do you know how much he owed in total? My balance is only $1,100 so I'm hoping that's small enough that they won't escalate to collections if I'm making consistent payments. Would hate to deal with a levy situation.

He owed about $7,500, so quite a bit more than your $1,100. The IRS typically doesn't take aggressive collection actions for smaller amounts if you're making regular payments. Their resources are limited and they generally focus on larger balances or people making no payments at all. For your amount, as long as you're making consistent payments and will have it paid off within a relatively short time (your 4-5 month timeline is very reasonable), you should be fine. Just keep documentation of all payments you make. If you do get any notices, respond to them promptly by calling and explaining your payment history. Lower balances like yours usually get more flexibility.

You can avoid the processing fee if you use the direct bank account option instead of a card! I've been doing that for my quarterly estimated tax payments and it's free to process that way.

Thanks for this breakdown! But what about the tax deductions for health insurance premiums and retirement contributions? I've heard those can make a big difference for self-employed folks.

Good point! Self-employed health insurance premiums are generally deductible "above the line" which means they reduce your adjusted gross income. Same with retirement contributions to SEP IRAs, Solo 401(k)s, etc. So if your friend pays $6,000 annually for health insurance and puts $10,000 into a SEP IRA, that could reduce their taxable income by $16,000, which would save roughly $4,000-5,000 in income taxes depending on their bracket. That would increase their take-home by the same amount.

I've been using QuickBooks Self-Employed for about 2 years now. It automatically tracks mileage, lets you categorize expenses, and calculates your quarterly tax payments. It's not perfect (sometimes categorizes things wrong), but it's been pretty close on the tax estimates.

Oh wow, this is really helpful info! I do have a full-time job with regular withholding that more than covered my tax liability last year. Does that mean I might not even need to worry about this missed payment? How would I figure out if I'm covered by this safe harbor thing?

You're likely in good shape then! If your W-2 withholding from your regular job will cover at least 100% of what your total tax liability was last year, you should qualify for the safe harbor provision and avoid any penalties. To verify this, look at your last year's tax return (Form 1040) and find the "total tax" line (line 24 on recent returns). Then check your projected W-2 withholding for this year - if it will be equal to or greater than last year's total tax, you're covered by the safe harbor rule. Many people with side gigs and regular employment fall into this category and don't actually need to make quarterly payments despite having untaxed income on the side.

You can also update your address with the USPS and they will forward your mail, including IRS notices. I did this when I moved and it worked fine.

That sounds like a lot of extra steps... is it really worth the hassle just to get a tax deduction? Wouldn't you lose money on the resale compared to just donating the rewards directly?

You're absolutely right that it involves extra steps and might not be worth it for smaller amounts. You'd definitely lose some value in the resale process - typically 10-30% depending on what you're selling and where. I only recommend this approach if you're someone who itemizes deductions and is close to the standard deduction threshold. In that specific case, pushing yourself over the threshold with legitimate deductions might save you more in taxes than the value lost in the conversion process. For most people though, direct donation of the rewards cards is simpler and still does good, even without the tax benefit.

Thanks for pointing that out! I was about to use my Verizon points for exactly this purpose. Do you know if there's a way to donate the rewards directly to a charity instead of going through CharityChoice to avoid the admin fee?

I don't believe Verizon offers a direct donation option unfortunately. However, if you have a charity you specifically want to support, you might consider redeeming for regular gift cards that the charity needs (like office supply store cards, etc.) and donating those directly. That way 100% goes to the charity. Just call the charity first to check if they accept gift cards as donations. Many do for operational expenses, but policies vary. And remember, you'd still face the same tax deduction limitations we've been discussing.

Wait, I thought Section 1231 losses always get ordinary loss treatment regardless of holding period? Isn't the 1 year+ holding period just for determining if gains get capital gains treatment? I've been doing my taxes wrong if that's not the case!

You're right that Section 1231 losses are treated as ordinary losses regardless of holding period. I should have been more precise in my explanation. What I was referring to is that to qualify as Section 1231 property in the first place, the property must be used in a trade or business and held for more than 1 year. Since the OP has held it for 2 years as a rental, it qualifies as Section 1231 property. If it had been held for 1 year or less as a rental, it wouldn't qualify for Section 1231 treatment, and would instead be subject to ordinary income/loss rules for property not used in a trade or business.

I actually haven't heard of cost segregation before. That sounds really useful! Is it something I could still do now even though I've already been depreciating the property as a whole for 2 years? Or is it too late to change how I've been handling the depreciation?